INTERVIEW: KKR homes in on Western Europe

New York-based private equity giant KKR may be a newcomer to European real estate but it has ambitious plans to deepen its footprint in Western Europe, Guillaume Cassou, head of European real estate at KKR, told PropertyEU.

‘Real estate is a strategic initiative for us; in the long term we want to build a global integrated business and we’re on a journey to grow,’ London-based Cassou said.

KKR, formerly known as Kohlberg Kravis Roberts, only entered the European real estate space three years ago but is now on an investment drive to boost its exposure in core Western European markets, including the UK, Germany, France, Spain and the Nordics, Cassou said.

In December, KKR announced it had raised $1.5 bn (€1 bn) for a real estate fund that will invest in the US and Europe, with around a quarter of the capital earmarked for Europe.

‘The fund focuses on the US and Western Europe, with a broad investment mandate including the UK, France, Germany, Spain and the Nordics,’ said Cassou. ‘Deals take time to unlock so we don’t have a set allocation in terms of how much we’d like to invest in each county. Of the $1.5 bn we have raised for this strategy, we can invest up to 25% in Europe.’

In the past 12 months, KKR has done four deals in Europe with a combined value of €450 mln, according to Cassou. Last month, in partnership with its French asset manager partner Seefar, KKR announced it had acquired a portfolio of four of Corio’s shopping centres in France for €104 mln for its real estate fund. (Corio announced back in December that the portfolio had been sold but it did not disclose the buyer.)

‘We like retail because we have a long-standing retail private equity platform we can leverage to help us make real estate investments,’ Cassou explained.

The 55,300 m2 portfolio acquired from Corio includes the shopping centres Les Quais d’Ivry in Ivry-sur-Sein and La Grande Porte in Montreuil. The acquisition was financed by German lender Helaba Landesbank. KKR and Seefar were advised by Gide Loyrette Nouel Wargny Katz, Freshfields, Deloitte and Alamo. Corio was advised by Allez & Associes, Allen & Overy, BUL, DC Advisory and SL & Associés.

KKR made its first European acquisition in June last year when it acquired a 39,950 m2 retail park portfolio from Resolution Property in the UK for an undisclosed sum. The portfolio comprised multi-let retail space in cities such as Oxford, Glasgow, Sunderland. Quadrant Estates will manage the properties.

Although three of the four European deals that KKR has done in the past 12 months were retail acquisitions, Cassou is keen to emphasise that KKR is not interested in a purely retail fund. ‘We’re targeting retail, office and hotel properties in Europe and have also invested in senior housing, residential and industrial properties in the US.’

Typically, KKR is targeting deals that are between €100 mln and €150 mln each, although the group can also commit to bigger deals, Cassou said. He declined to comment on long it would take to fully invest the fund, although similar funds would typically be fully invested within three years. KKR has not disclosed the annual target return of the fund.

The UK and France are high up on Cassou’s wish list, despite their very different dynamics.

‘The UK is an interesting market for us because it was the first market to recover after the crisis. London is a very international market but pricing is elevated due to robust global capital flows. That’s why we’re also looking at regional cities in the UK, targeting value-added opportunities. We’re interested in assets with a distressed capital structure rather than assets that are fundamentally distressed,’ he said.

France is a different story because it’s taking longer to recover than the UK. ‘There’s some stress in the market because of macro-winds, and therefore we have to be selective,’ Cassou warned.

Interestingly, unlike many other US-based private equity groups, KKR is a relative newcomer to real estate. The firm, which had $94.3 bn of AUM globally as of end-December 2013, was a pure private equity concern until 2005. Since then, it has diversified into many sectors, and has built up a $35 bn credit business capable of investing across the capital structure. To boost its loan business, KKR acquired Avoca Capital in February, which has €5.82 bn under management and invests in European loans, bonds and credits. Avoca Capital is based in London and Dublin. The terms of the deal have not been disclosed. In a further bid to diversify, there have been reports this week that KKR is considering launching a specialist fund to invest in fast-growing technology companies.